The only people who ask this question are people who haven’t been landlords. Every single one of my friends who has, can commiserate with me as a former landlord.
Maybe buy a vacation home to rent, or an apartment complex. And of course being a part- or full-time landlord is a perfectly reasonable job.
But if you think that being a landlord just means having someone else pay your mortgage, I guarantee you will think differently after a year with even exemplary tenants. And most tenants are far from exemplary.
(still shaking head)
If having to fix a clogged toilet at midnight once a year is the sacrifice I have to make to retire early, so be it.
I've been thinking a lot about buy an investment property, but the mixed workload reviews makes me hesitant
Most people are afraid of rental properties because it's out of their comfort zone.
Working a W2 job, socking money away in a 401k, and retiring at 65 = normal, safe, responsible, respectable.
Working a W2 job, slowing accumulating rental properties, fixing a toilet once in a while, and retiring at 45 or younger = deviant, risky, naughty.
I haven't been to my property in 2 years(probably not the greatest idea though)
My partner had been renting her house out for about 5 years with the usual annoyances, when the newest tenants left a cabinet on a cord that after a few months started an electrical fire that torched the place. No one was injured and it was (mostly) covered by insurance, but it was still 6+ months of dealing with all the claims and repairs and getting it back into shape. And to top it off, the tenants took her to small claims court for the security deposit! (They lost.)
And forget about evicting an unwieldy tenant on any reasonable schedule in California. I have friends who’ve been foreclosed upon while trying to get unpaid tenants evicted.
If you’re willing to do this as a second job, go for it! Personally I would (with the benefit of hindsight) invest in a multi-unit income property or a vacation home with rental potential if I were going to buy investment properties, but that’s just me.
8% off the top depending on your particular scenario could get you pretty close to the same net returns at the end of the day. If you went with a few REITs, management would take maybe a few hours a month even for a massive portfolio. This also has the benefit of being much more diversified than a single investor directly owning various properties could possibly manage.
Granted, using REITs is a tradeoff in granularity of asset allocation and potential upside, so there is always that zone of opportunity to exploit. It just takes a delicate evaluation of the value of your time vs the opportunity itself relative to other competing strategies.
Because REITs don't allow you to invest in one house via improvements at your discretion.
At least in the Bay Area, buying a somewhat run-down / older property, renting it out for a number of years, then renovating/upgrading it right before you sell has been a very profitable strategy for homeowners who have some project management skill.
Los Angeles (where we were) is a bit more volatile (ie it actually goes down now and then). If I had bought property in the Bay Area in, say, 1999-2000, I’m quite certain I’d be more willing to put up with tenant bullshit in exchange for nearly endless appreciation.
YMMV!
8% is not bad if the goal is income properties. However I would invest in a multi unit property if I were going to be a landlord again. Less concern about one bad tenant potentially leading to foreclosure if you get crunched from all sides. (Which seems to be how it usually happens)
X% of tenants are reasonable and handle the repairs they are contractually required to handle smoothly.
(1-X)% of tenants are a massive headache, and call the landlord for every lightbulb that needs changing, threaten to sue you all the time, smash your property to pieces etc etc.
Compute the expected value, and compare with other forms of investment. In my experience, renting out a single property is not worth the expected reward, vis-a-vis other forms of investment. This changes if you can reap economies of scale from renting out multiple properties. (Cut-off point depends on ambient legal system, tax, your own background (e.g. if you are a lawyer, you can handle legal disputes yourself) etc.)
Excellent exposition!
You mean (100-X)% ?
Of course the best is to make it clear at the moment you rent, not when the issue arise.
Edit: I find it insane that most people in the US don’t see the advantages of renting. When you rent here, your housing cost is fixed for at least a year. Anything breaks, you call the landlord or leasing office and it gets fixed at zero cost to you.
I really miss renting. Now that I own a condo, I keep having to deal with unexpected expenses - fridge breaks, something comes off the drywall, microwave breaks, plumbing issues, etc. Plus, I don’t have the option anymore of moving closer to my kid’s school when she transitions to middle and high school (and those are quite far compared to her elementary school). I mean, I do, but selling a place and buying a new one is a monumental hassle compared to switching apartment leases.
I would go back to renting if I could.
The obvious downside is you'll never get any ROI beyond having a place to live like you may with property ownership. Homes are great when you have financial stability and freedom but can become a big shackle if you don't.
Therefore rental price to purchase price ratios have historically been lower, as well as home ownership rates. Rents in desirable cities are going up faster than they had been, though, and Berlin has quickly gone from being one of the cheapest cities in the country to one of the most expensive.
Anyway, point being, this is like any other investment, you have to do the work up front to ensure the risk and payout are balanced. In their case, it was a no-brainer to keep the house when they moved into something larger. Almost zero chance of the home being unoccupied, better than average chance at a good tenant, etc. But, they're also financial well-off and could afford to keep a relatively expensive house in a nice area - obviously not an option for many in the middle-class.
Historically house prices have risen enormously and a whole lot of people have made money, so everyone believes this will continue forever despite a huge political movement behind building more houses and other (good) policies that will reduce prices. On the linked page I typed in "-20%" into the annual appreciation field and lost $717,000.
Interestingly though 30% of people buying houses now in the UK are not getting mortgages (in some areas much more than that [1]) and I assume most of these will be the types of investors who are looking to buy a second home to rent out.
[1] https://www.thisismoney.co.uk/money/mortgageshome/article-63...
Borrowing to buy a house at 4.5% you might think, "Not much risk, will likely appreciate faster." Borrowing to buy stocks at 10% and you're almost certainly not going to come out ahead.
(Maybe my broker has terrible rates, others could be more reasonable.)
Though maybe LEAPS (and for indexes, futures) are a still cheaper way to get leverage.
Edit: goodness, the rates on some of those currencies is less than the dividend yield of those countries' indexes... If I don't expect New Zealand to sink into the sea, is it stupid not to borrow NZD and invest in the NZ top 50?
IIRC, last time I looked at margin out of curiosity with my brokerage firm (schwabs/2014), I also remember to be around 10%.
I can’t help but think we are living in a unattainable economic environment...
My subjetive experience in the USA (Seattle and NYC) is that you can get 4-5% with a steady job and 20% down for primary residence. Anything out of ordinary, like 2nd mortgage (since we are talking about real state as investment), the interest rate goes up (6-7% last time I applied for one).
Also, while the margin rates can be higher, there is more liquidity, smaller transaction costs, and much smaller fees.
Transaction costs are a big one. In some countries there's stamp duty, in the US there are unusually high closing costs (6%?). That said, the bigger the investment the longer I want to hold it, and those transaction fees aren't as steep when amortised over the home-onwership term.
You know the same thing applies to stocks and shares. And in fact stocks and shares have risen more historically [1]
Shares also have liquidity, you can easily sell them in part or whole. You can diversify. One incident could easily destroy a house, if it destroys your well diversified stock investments you've probably got other problems.
So agreed the stock market is the better investment, but as we can't see the future, both are based on past performance. Yes there are headwinds, there always are, I can think of many many reasons why stocks could fall, that doesn't really change what has happened historically though.
Of course the beauty of investing is that if you disagree you can put your money where your mouth is :)
[1] https://www.investopedia.com/ask/answers/052015/which-has-pe...
buying a house to live is not an investment, and i should think that people ought not to treat it as such. Buying a house gives you stability and security for shelter. It's quite possible that renting is cheaper, but you also can't do certain things while renting - such as small renovations (some places don't even let you nail a painting on to the wall).
Investments in real estate is a different ballgame to buying your home.
I'm happier living in a house than an apartment but my house is a place to live, and an item of value, but not an investment I expect to make profit from.
(according to random site on the internet, it's a little below inflation: https://www.in2013dollars.com/2002-dollars-in-2018?amount=30... )
That said, buying a house is basically buying an index linked annuity that covers your rent on a property you have to maintain. So it is an investment, albeit one tied up with a lot of other baggage.
1 - It does not imply that much work. Not even close. For instance, my uncle and aunt rented a flat for 6 years to the same family, and in that time my uncle had to go there about 1-2 times for minor problems, and I don't think it's an exception. There is a bit of work at the time of finding new tenants, but in the case of the people I know, it's like an average of 4 hours of work a year at the very, very most.
2 - (and most importantly): middle class people who invest in real estate are keen on having a rent. Stocks don't necessarily give you that. They see buying a house and renting it out as a way of having a monthly recurrent source of income.
Also it's not only about work, but cost of maintenance.
I don't want to belittle the $500, but if we had good tenants and dealt with them directly we'd be getting double that.
Now is an extra grand a month worth the hassle with GOOD tenants? Maybe. But all it takes is one bad one to be in the hole and full of stress.
Which kind are you talking about? I'd be surprised if the discrepancy between countries was as large as 6% to 15% for the same contract.
Looking at the model I guess the nearest factor is Annual Costs (maintenance). But it doesn't feel properly measured.
I note that for someone on Hacker News, it needs charging at the day rate for a programmer. Or even as an opportunity cost - charging with a risk-based possibility of the reward of starting a successful technology startup. Or of spending more time with family or in sunlight, amongst trees. At peace.